Original Author: Michael Rinko

Original Translation: Biteye Core Contributor Crush

Original Source: Biteye

How does the outflow of stablecoins affect cryptocurrency prices? Is the market still purely a game for individual investors? This article will give you the answers.

The market value of stablecoins has been declining for the past two years, with the current drop reaching levels seen during the bear market of 2018.

If we conduct a regression analysis, we will find a strong correlation between the total market value of stablecoins and Bitcoin, with r = 0.68, r^2 = 0.47.

(Translator's Note: Here, r represents the correlation between the market value of stablecoins and the price of Bitcoin, ranging from -1 to 1. -1 indicates 100% negative correlation, 1 indicates 100% positive correlation; r squared represents explanatory power, such as here, it means that 47% of the current Bitcoin price can be explained by the market value of stablecoins, while the remaining portion may be due to other reasons.)

It has an even stronger correlation with Ethereum, with r = 0.80, r^2 = 0.64. This is likely due to Ethereum's significant decentralized finance ecosystem.

The market value of stablecoins has the strongest correlation with the total lock-up volume of DeFi, with r = 0.80, r^2 = 0.65.

This makes sense because most people enter DeFi through stablecoins, and more stablecoins mean more locked-up volume in DeFi.

Overall, there does not seem to be a clear relationship between the market value of Bitcoin and stablecoins. We can verify this by conducting a correlation analysis with different lag periods of -10 to 10 days. We found that the correlation between the total market value of Bitcoin and stablecoins is highest when there is no lag.

(Translator's note: Here, lag period refers to shifting the market value of stablecoins forward by 10 days, 9 days, 8 days, and so on, until shifting the data backward by 10 days. Then, the value of each day is analyzed for its correlation with the price of Bitcoin on that day, calculating the r-value to examine whether there is any degree of temporal precedence or causality between the two.)

If we extend the analysis to a growth rate of 180 days, we can see that in the previous cycle, the market value of stablecoins led the rise of Bitcoin, but during the decline, Bitcoin took the lead over stablecoins.

However, we should not put too much trust in this observed temporal relationship, as we only have one market cycle to establish this connection.

Below is a graph of the one-year growth rate:

In conclusion, the statement by @Pentosh 1 is correct. Currently, the entire market is still in a PVP game state. Once we see a large influx of stablecoins, it may indicate the return of more retail investors and risk-tolerant individuals.

For those interested in stablecoins, you can use Chaineye's Stablecoin Dashboard to learn more detailed data.